UPDATE: St. Mary's Health announces plans to cut staffing by July 1

FILE- Feb. 2011- From left, Lou Anna Schalasky, a registered nurse and St. Mary's orthopedics coordinator, Boren, and Jill Turpen, a unit assistant for the surgery department, look over the day's schedule and work to make sure everything is set and running smoothly as they start the day.

Tim Flesch, President of St. Mary’s Health

EVANSVILLE - St. Mary's Health's decision to eliminate an as-yet unknown number of jobs before July 1 is a concession to realities of the national health care economy and the local health system's own related efforts to reduce preventable hospitalizations, President Tim Flesch said Thursday.

Management doesn't know which of St. Mary's roughly 3,600 full-time and part-time employees will be let go or how many, Flesch said, but the scope of review includes all of the medical operations under the St. Mary's umbrella. Among those are St. Mary's Medical Center, St. Mary's Warrick, Surgicare, physician practices, a home health agency and two convenient care locations.

Without the reductions, Flesch said, St. Mary's would project a drop of nearly 40 percent in income from operations in fiscal year 2014, which begins July 1. That would represent a gap of about $15 million.

St. Mary's was one of two Indiana hospital systems to announce Thursday that they are cutting an undisclosed number of jobs by July 1 because of increasing economic and competitive pressure on the health care industry.

St. Vincent Health, an Indianapolis-based network of 22 hospitals, also said it is restructuring its workforce and will result in cuts to employed and contracted workers. St. Vincent employs more than 3,000 physicians and 18,000 other employees. St. Mary's has 750 physicians and more than 3,500 other employees.

"We're in a process right now of going through and looking at every department against benchmarks of more efficient systems," Flesch said. "We're looking at the span of control that our management has to ensure that we are properly structured at that level. We are evaluating the financial sustainability of operations. We are looking at whether services meet a core strategic need for us and add to the value that we have to the community."

Evansville-based St. Mary's Health is one of the largest employers in the area.

"We know the nervousness this causes and the tension that it causes," said Flesch. "We're aware of that. We're sensitive to that."

Flesch stated repeatedly that quality of patient care will not be affected by the employee losses and, in fact, will improve because reducing costs will make future investments in health care possible. He cited as an example a clinically integrated physician hospital organization St. Mary's plans to launch this summer. The population health management tool is designed to reduce and eliminate preventable hospitalizations by tracking patients early in their path through the health care system.

Flesch cited three factors in the decision to eliminate positions:

n Patient volumes, particularly inpatient volumes, lower than what St. Mary's had budgeted for. He attributed that largely to the hospital system's own long-term efforts to improve the quality and efficiency of its care through better health population management, including electronic medical records advances that facilitate greater systemwide communication. St. Mary's has reduced its readmission rates and lengths of stay, Flesch said, moves that might seem counterintuitive but which reduce costs and serve a larger purpose.

"Our revenue is challenged in those efforts. We understand that, but we know that that is the right thing to do for our patients, for our community and for our businesses," he said. "It's the right thing to do, but as that occurs, we have to get our costs in line with that trend."

n The lower patient volumes help drive another factor Flesch cited in the employee reductions: decreasing reimbursements to St. Mary's.

"The health care industry said, ‘We'll agree to a reduction in our Medicare reimbursement to provide funds at the federal level to help pay for Medicaid expansion, which was part of the Affordable Care Act," Flesch said. "We're seeing that reduction (in the payment St. Mary's gets from Medicare) happen because we agreed to do that as an industry to help cover more patients."

The reduction in reimbursement also is a consequence of this year's "sequester" budget cuts, Flesch said.

"We expect that the budget pressures will continue to mount to reduce Medicare reimbursement even further, and that's because the growth in the beneficiaries of Medicare is far exceeding the growth in Medicare revenues that are coming into the program," he said. "That economic reality will play out. We need to be prepared for that and need to put ourselves on a path of producing health care at a lower cost."

Another factor is pressure from commercial payers and others to flatten out and lower reimbursements in response to the demand from businesses to lower their health insurance costs, Flesch said.

* Reductions in payments mandated by the Affordable Care Act — the health care legislation passed by Congress in 2009 at the encouragement of President Barack Obama.

Flesch did not criticize the controversial legislation, calling it a response to the economic reality of 52 million uninsured Americans. He said the insurance exchanges which come on board in January 2014 as part of the law "will have a downward pressure, we believe, on reimbursements to hospitals."

"There's a lot of talk about, you know, we just need to repeal the Affordable Care Act," he said. The Affordable Care Act is a response to the economic reality, and so if (the Affordable Care Act) goes away, the economic reality doesn't go away, and we will need to address that as a nation. ... The Affordable Care Act is a response to the need to reform our health care system, to deliver care most cost-efficiently and cost-effectively than we do today."